December PPI quickens at 10,3%

South Africa’s producer price inflation quickened to 10,3% year-on-year in December, above forecasts, after a 9,1% increase in November, official data showed on Thursday.

On a monthly basis, PPI increased by 0,5% after a 0,3% rise in November. The average factory gate inflation for 2007 stood at 10%.

Economists polled by Reuters had forecast that annual PPI would come in at 10,1%, while the monthly rate of increase was seen at 0,3%.

Fanie Houbert, an economist at the Efficient Group, said: “It’s slightly higher than expected.
But I think despite both the CPIX and the PPI coming somewhat above expectations, the Reserve Bank will keep interest rates on hold, given the external factors such as the turmoil in the financial markets and the impact of Eskom’s power cuts.”

Ridle Markus, an Absa economist, said the figure was broadly in line with expectations and that he didn’t think it influence the Monetary Policy Committee’s decision later.

“However, PPI inflation is still likely to accelerate, and peaking above 11% in February. It is disconcerting because it does show that there is still significant inflation on the production side of the economy.”

Danelee Van Dyk, economist at Standard Bank, said: “The number is higher than expected. What one must take into account though is that it came from a very low base in 2006 and shot up dramatically. I would like to see some of the components that have changed.

“But I still believe that one figure is not going to change the stance of the Monetary Policy Committee. We believe that the general trend is on the decline and that the focus will be on the declining trend that we have seen on the producer side.”

Annabel Bishop, economist at Investec Group Economics, said: “PPI inflation came out marginally higher than expected. It is likely to rise even higher in Q1.08, along with CPIX inflation, and both PPI and CPIX inflation are only likely to fall from Q2.08.

“There is nothing the SARB [South African Reserve Bank] can do to change this outcome, as any interest rate hike now will only impact the economy, at the earliest, in the second half of this year. While we believe the SARB should therefore leave interest rates unchanged at today’s MPC meeting, a hike of 50bp is likely to be announced instead as CPIX inflation still has at least another 1% to climb.” - I-Net Bridge, Reuters

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